So you found the car you want but have to decide how you will pay for it. There are multiple ways to pay for a used car, like financing, leasing or cash. The best method to pay for a used car may vary if you are buying from a dealer or a private seller. There are advantages and disadvantages to each payment method, but choosing the right car will depend on the type of car you want, length of ownership and current budget.
Purchasing with Cash
Cash may be one of the easiest and cheapest ways to purchase a car, as it will eliminate finance fees and interest costs. There will be no monthly payments when paying with cash, but it will take a large amount of money out of your savings, which could be a problem if money becomes an issue in the future. Paying with cash allows you to avoid the additional costs of interest rates that come when financing a car. When purchasing from a private seller, cash may be the best option, as they will most likely expect to be paid with cash or check. Cash allows for easy purchase of a used car, but that money could be used as a down payment for more options of vehicles.
Financing a Vehicle
Paying for a used car can be done with the help of financing through credit unions, car dealers or arranged with a bank. If you arrange to pay with financing through a dealer or bank, then you will pay for the car in monthly instalments, which typically last 60 months. Once all the payments are made, you own the car. Financing arrangements will include interest charges and you will have to put down an initial cash deposit of about 10 to 15 per cent. The availability of good financing depends on your credit rating, with a better score leading to better financing terms. An advantage of financing is that it allows you to have money available for other purchases. Overall, credit arrangements can be more expensive in the end but allow for a greater degree of freedom in the choice of a vehicle.
Leasing a Used Car
Automotive leasing is available through credit unions, banks and dealers. Leasing a car is similar to renting an apartment with monthly payments that allow you to drive a car. When leasing a used car it will likely be under warranty to cover any mechanical problems. The monthly payments when leasing a car are cheaper than the payments from financing a car, but you will not be able to keep the car at the end. Lease payments depend on the car's residual value, which is the value the car will have at the end of the lease. When leasing a car you are limited to a set number of kilometres a year, which is usually around 16 000 to 24 000. If you use the car for business over 50 per cent of the time, lease payments can be deducted from your taxes. If you like the car you lease, you can pay off its remaining value but this may cost a lot. Leasing a car has the advantages of being cheaper than financing, but the disadvantage of having no equity at the end of the lease.
There are a few other options when purchasing a used car, like paying with a credit/debit card or a part-exchange. Paying for a used car with a credit card allows you to pay for the whole car at once. You will then have to arrange to pay off your credit card debt. Paying with a credit card will involve interest charges if you pay your card in instalments. Another option is using a debit card, which takes the money out of your bank account. Similar to paying with cash, make sure to have enough money to cover the payment. A part-exchange is when you trade your old car to a dealer as payment or partial payment for a different car. If the old car can only pay as partial payment then another payment method will be required to cover the rest of the cost.
It is important to choose the right payment method when purchasing a used car. Keep in mind your current budget and future expenses. Look at used car dealers and used cars sales in local listings to find a good deal. When buying a used car, cash can be a good choice if you cannot find a good interest rate and the car is inexpensive. If you can find good financing on a car with a good interest rate then financing may be the best option. Always do the research on what financing you can get and evaluate your funds for what payment method works for you.